What is Legal Expenses Insurance?
Pursuing a workplace dispute can be costly, especially because even if you win a case at the Employment Tribunal you will usually still have to pay your own costs.
Our focus is to achieve the best financial outcome for our clients, and we always discuss alternative funding arrangements. Whilst most of the work done by our employment team is on a privately paid basis, that is to say that the client pays his/her legal fees directly, we also take cases on which are funded by the client’s Legal Expenses Insurance (LEI). This usually means that the client’s legal fees are paid to the law firm by their LEI – payment is typically made when the case concludes.
Many clients are unaware that they have the benefit of LEI. This could be because such cover is a free ‘add on’ to another insurance policy, such as a home insurance policy and for this reason it is easily overlooked. We would encourage everyone with a potential employment dispute to check their insurance policies carefully to see if cover is available!
If a workplace dispute arises and you have the benefit of such cover, you should discuss this with your solicitor at the outset. This is the case even where cover will not necessarily take effect as soon as a dispute arises.
Many policies stipulate that cover is in place at the stage that proceedings are issued. If this is the case, your LEI may not cover the costs of advice relating to any disciplinary or grievance, for example.
We would recommend that you find out whether you have the benefit of LEI as soon as possible, as having the cover is one thing, but getting the insurance company to agree to cover you is another, and this can take some time.
What are the conditions of getting cover under Legal Expenses Insurance?
There are certain requirements which must be satisfied before the LEI will confirm cover and agree to pay your legal fees. These requirements will differ depending on the wording of the policy, but most policies tend to include the following stipulations:
- The LEI will only cover the costs of those legal claims that have reasonable prospects of success. This usually means that your claim(s) must have at least 51% prospects of succeeding at tribunal/court;
- The legal costs of pursuing your claim(s) must be proportionate to the realistic value of your claim(s). As such, before agreeing to cover your fees, the LEI will want to understand the likely compensation you could receive if your claims(s) succeed. This means that even if your policy entitles you to £100,000 worth of legal cover, if the realistic value of your claim is £50,000, the LEI will only cover legal fees up to £50,000.
- LEI cover does not necessarily take effect as soon as a dispute arises.As mentioned above, most LEI terms stipulate that cover will be effective once proceedings have been issued – this means the stage at which the Claim Form is drafted (although this may be open to negotiation depending on the circumstances);
- The LEI may insist that your case will be dealt with by a lawyer appointed by them – this is usually someone on their panel and not necessarily a solicitor.
Can you choose your own lawyer?
You have the freedom to choose your own lawyer.
However, we often hear from clients who are told by their LEI that they must agree to the appointment of the lawyer nominated by the LEI. This can be disruptive for the client, particularly where they already have a lawyer acting, who is familiar with the case.
LEIs prefer to appoint a lawyer from their panel. The advantage to them of doing this is that it enables them to minimise legal costs – as they usually agree a fixed fee or significantly reduced rates with lawyers on their panel.
Clients often feel that there is a conflict in the obligations the panel lawyer owes to the LEI and to them as the client, and that this impairs their ability to do a good job for them.
There are also concerns that the panel lawyer will feel disincentivised if they are only being paid a fix fee and that this will deter them from taking a thorough approach to the case.
Another concern raised by clients is that the panel lawyer may not have the necessary experience or expertise to deal with complex cases, such as those involving discrimination or whistleblowing.
We have seen a number of good discrimination claims, which have been assessed by the LEI’s panel lawyer as having no reasonable prospects of success. Based on the advice received, the LEI has refused to cover the client. The client has then sought advice from us to get a second opinion in order to challenge the LEIs decision to deny cover.
In our experience is it easier to get LEI cover in place once you have a positive assessment from an independent lawyer (that your case has at least 51% prospects of success), and we regularly carry out such assessments on behalf of clients. If, however, you have already received a negative assessment from the panel lawyer, you can often still challenge this with an assessment from a lawyer of your choice (also something we assist with). Sometimes it is possible to get the LEI to agree to cover the costs of getting a second opinion. However, it can make it more difficult to get LEI cover in place – as LEIs are often reluctant to accept that their panel lawyer could have got it wrong.
Our advice is that if you want to appoint a lawyer of your choice, stand firm with your LEI and insist on your right to choose your own lawyer. The law is on your side, as the courts consider it to be: “…the fundamental right of every citizen to be represented by solicitors of his or her choice” .
The policyholder’s freedom to choose his/her own lawyer is also set out in regulation 6 of the Insurance Companies (Legal Expenses Insurance) Regulations 1990.
The insurance company cannot object to funding your case because you do not agree to the appointment of their panel lawyer.
Another method used to curtail the policyholder’s freedom of choice is for the LEI to refuse to pay your preferred lawyer’s hourly rate. LEI’s panel lawyers are usually required to agree a fixed fee for the work or a significantly reduced rate of around £100 per hour. The courts have accepted that the LEI’s refusal to pay your preferred lawyers reasonable rates is an infringement of your right to choose your own lawyer and is not allowed.
What should you do?
- Step 1: Check if you have legal expenses insurance for employment claims. The first step is to check your insurance policies and check with your insurance company whether you have cover. Don’t forget that legal expenses insurance may be an ‘add-on’ to a home/contents/car/bank account policy which you didn’t know you had.
- Step 2: Check the terms of the policy. Even if you have legal expenses insurance, you will not automatically get cover. Policies will differ as to their conditions, but many will only kick in once a claim has crystallised and will be subject to a positive assessment of prospects of success. Check if your LEI will cover the costs of the assessment. Be aware that your LEI may try and persuade you to agree to an assessment by a lawyer on its panel.
- Step 3: Choose your lawyer. You don’t have to appoint the panel lawyer nominated by your insurance company.
If you already have a lawyer acting for you, and you want them to continue to act for you, you should ask to appoint them under the terms of your policy. You want to avoid the LEI doing a detailed assessment of your case, as if this is not positive, you will be denied cover.
Your lawyer will be familiar with your case, s/he will be best placed to do the assessment and can provide a written assessment of your case – setting out how good your claim is and its realistic value – to the LEI.
- Step 4: Agreement of terms between your lawyer and the LEI. If, the LEI agree to cover you and your appointment of an off-panel lawyer, the next step is for the LEI to agree terms (including the hourly rates they are prepared to pay your lawyer). It is then a matter for your lawyer to agree the terms of appointment with your LEI. If the LEI will not cover your lawyer’s rates in full, you can agree with your lawyer to top this up yourself.